Layne's stock (ticker: LAYN) sank like a stone this month, falling 15% to a low of $17.83. The latest trouble started in March, when the company preannounced poor quarterly earnings, noting a slowdown in its mining-equipment business, which contracts drills to gold- and copper-mining concerns. Miners have cut back on spending as metals prices have fallen.

Layne announced earnings April 15, the same day China, the world's largest consumer of industrial metals, warned of slowing economic growth. Further rattling investors, gold and copper prices plummeted that day.

Barron's wrote a bullish story on Layne last fall, when the stock fetched $20.90 ("A Water Play to Whet Investors," Oct. 15, 2012). We noted the company was in transition, and that Rene Robichaud, named CEO in 2012, had been cutting costs, selling noncore businesses, and instilling more discipline regarding capital budgeting. The shares are down 8% since, but we still think they could be worth about 50% more in two years.

Layne's shares are inexpensive; at Friday's close, they were trading at a 14% discount to the company's book value. Gerard Sweeney, an analyst at Boenning & Scattergood, wrote in a recent report that they could soon return to the low $20s.

Layne generates 76% of its revenue from providing water-infrastructure services to municipalities. It drills water wells and stabilizes soil for major construction projects such as dams and tunnels. Its Heavy Civil unit designs and builds wastewater-treatment plants. The mining business contributes the remainder of revenue, which totaled $1 billion in the fiscal year that ended Jan. 30.

Price

$19.14

52-Week Range

$25.11-$17.42

Market Value

$379 million

2013 Revenue*

$1.07 billion

2013 Net Income

-$37 million

EPS 2013

-$1.88

Adj. EPS 2014E

$0.57

Price to book value

0.86

*Fiscal year ends in January. E=Estimate

Sources: Thomson Reuters; company reports

The company has been burdened by unprofitable legacy contracts in the Heavy Civil business. Along with weakness in mining, the contracts contributed to a loss of $1.88 a share in fiscal 2013. The company also lost money in fiscal 2012. With the remaining contracts winding down, and a business backlog growing in Heavy Civil, the division could return to profitability this year, driving a significant improvement in total earnings.

Profits also could benefit from more stability in the mining business. While mining is expected to remain soft relative to recent years, when activity and metals prices were booming, management projects it will return to profitability in the first quarter. Layne could earn $10 million, or 57 cents a share, in fiscal 2014, on revenue of $1 billion.

Layne is also focused on a potentially large opportunity in the energy sector. It is building up a business that provides water-management services for energy exploration and production companies that are engaged in hydraulic fracturing for oil. Management is targeting $200 million in revenue from this business in the next four to five years.

Despite Layne's recent problems, we still agree with money manager Kian Ghazi, who formerly ran Hawkshaw Capital and made a strong case at an investment conference last fall that the shares could be worth $32 in two years.